Labor pact could save SD $20M

Freeze on pensionable pay was key component of Proposition B

San Diego  The city could free up an additional $20 million in its $1.2 billion operating budget if it can reach a five-year contract with its employee unions that includes a freeze on workers’ pensionable pay, solidifying a key provision of the voter-approved Proposition B.

Mayor Bob Filner is pushing for such a deal and a City Council majority agrees, yet there’s a decent chance it won’t happen.

That’s because there’s strong disagreement between the council’s Republicans and Democrats about how much of a financial incentive unions should be given to sign off on a deal. Under Proposition B, it takes six council votes to finalize a labor contract that includes a pay hike and the panel currently has a 4-4 partisan split.

Filner, a Democrat who won last year’s mayoral contest with significant financial support from unions, is advocating for across-the-board salary increases for workers while the Republicans say any increase should be modest and sustainable. The raises under consideration would be nonpensionable and therefore can’t be used to bolster future pensions.

In an interview, Filner said he doesn’t understand why the same Republicans that backed Proposition B — which calls for a five-year pensionable pay freeze — won’t support it in labor negotiations.

“I don’t understand why it’s not a no-brainer for these guys,” Filner said. “Everything being equal, a five-year deal has all kinds of other things. That is, you get stability. You don’t have to pay your labor negotiators. You don’t have to worry about a contract every year. And because we have (budget) surpluses projected you can give employees stuff that they see light at the end of the tunnel and it helps morale and everything. So I don’t understand their resistance.”

Specifically, Filner said he wants the five-year contract to gradually restore the 6 percent compensation cut that all workers took beginning in 2009. The city’s roughly 10,000 employees haven’t had an across-the-board pay increase since then although about half received raises through promotions and step increases.

Filner and City Council members are prohibited from disclosing what is discussed in closed session regarding labor negotiations, but the Republican council members have hinted that Filner is seeking much more than a 6 percent pay hike.

Councilman Kevin Faulconer, who would talk only generally about negotiations, said the mayor “needs to be honest” with the public about what he’s proposing.

“I will not support double-digit, across-the-board government salary increases,” Faulconer said. “Massive double-digit salary increases will give away every penny of pension reform savings, plus tens of millions more over the next five years. We can’t afford this particularly when the mayor is delaying street repair funding.”

At a council hearing Tuesday, Councilman Scott Sherman said he’s supportive of a five-year deal if it is reasonable.

“The devil’s in the details so it really comes down to one five-year deal would be very good and another five-year deal might be really bad,” Sherman said. “So it really comes down to the details, but conceptually the five-year deal is something we should strive for.”

Michael Zucchet, head of the city’s largest union representing white-collar workers, declined to comment for this story citing the ongoing negotiations.

There’s incentive from all sides to get a deal done. Labor leaders would love to get across-the-board pay hikes for workers who have gone years without such an increase. City leaders want the savings generated from a long-term deal to go toward bolstering services.

The problem is identifying a pay hike that is amenable to both labor and at least six council members. Here’s a breakdown of the numbers at play:

The pension system’s actuary has estimated a five-year freeze would slash $25.2 million off the coming year’s $275 million pension payment. About $20 million of that would apply to the general fund. Over five years, the general fund would see about $110 million in combined savings.

Every 1 percent in across-the-board salary increases for city workers costs roughly $5 million annually to the general fund so restoring the 6 percent cuts immediately would cost $30 million annually. That would create a $10 million deficit in the first year. A more realistic option would be to spread the increase gradually over the five years.

Of course, those calculations don’t include a variety of other budgetary factors to be considered when trying to determine if the city can afford salary increases, such as projected revenue surpluses in future years.

At Tuesday’s meeting, nearly every council member expressed support for a five-year deal which led Democrats Marti Emerald and Sherri Lightner to question why a deal wasn’t already done.

“I hope the public recognizes the importance of thinking in a new way and saving this city revenues that would otherwise be lost if we don’t take advantage of that opportunity to exercise what’s been considered or viewed by proponents of Prop. B to be the magic bullet: the five-year labor contract with a freeze on pensionable pay,” she said. “I’d like to see the public hold our feet to the fire on this and make sure we don’t miss this opportunity to save money.”

A five-year pact would also have other financial benefits. Filner said the savings generated could allow him to not spend the $22 million in fire settlement from San Diego Gas & Electric to close next year’s budget gap as he has proposed. The city could also stop paying $450,000 annually on outside counsel for labor negotiations.

If a deal can’t be struck, the city will have to impose a one-year freeze on workers. That won’t generate immediate savings because the pension fund already assumed a zero percent increase for next year.